Exclusive: Humala pledges fresh currency action

Mar 1, 2013

Peru will press ahead with measures to protect its currency from any rapid appreciation that could threaten its export sector, the country’s president Ollanta Humala has told LatinFinance in an exclusive interview.

"We are a dynamic economy and we are concerned about the
strengthening of the sol and the depreciation of the
US dollar," he said,
in his most extensive interview with the foreign press
since taking office in 2011.

Humala,
who has been named Man of the Year by
LatinFinance, acknowledged that while central bank
intervention this year has helped stem the
currency’s rise, authorities must remain watchful
of renewed upward pressures as strong inflows of capital
continue entering Peru.

"We are also trying to create a capital market in
soles in which the finance ministry will intervene
with measures to avoid the arrival of short term capital," he
said.

Authorities are prepaying $1.68 billion in multilateral debt
as part of a broader effort to weaken appreciation
pressures.

Humala’s comments also come in the wake of
aggressive action by the central bank that has led to a 1.9%
decline in the currency since January 1. The monetary authority
has hiked dollar reserve requirements and stepped up its
sterilized dollar purchases in the foreign exchange market.

Diversifying the country’s export base away
from raw materials is a top priority of his administration,
Humala said. He stressed the need to shift the economy towards
exporting non-traditional goods, which he says already account
for 30% of total exports.

"Peru is basically a raw materials exporter and our
principal partners are the European Union and China," he said.
"We are diversifying our economy to depend less on the sale of
raw materials and more on the non-traditional sector."

Humala pledged to redouble his administration’s
focus on infrastructure development in order to preserve the
country’s record growth streak. "We need more
infrastructure, more energy, more services," he said. "We need
to reduce risks to guarantee a sound economy and public
policies to ensure that growth is reaching the people who need
it."

He said his government will prioritize investment in
transport, energy and telecommunications infrastructure. "My
legacy will include infrastructure," he said. "I do not think
that any government policy can be successful if we do not have
a successful economy."

Humala told LatinFinance his goals in office are
the same as those he promoted on the campaign trail.

"People say there are two Ollantas, one the candidate, the
other the president. But this is not true: I am the same person
who wants to follow through on my commitment,"
he said.

"We created the mining tax, but unlike those who did not
know me, who thought I was going to do it based on coercive
methods, threats of nationalization, we did it through dialogue
with the companies, explaining the country’s
needs," Humala said. "That is what this is about: complying
with my duty."

The president said that maintaining Peru’s
record economic expansion was key to fulfilling his promise of
social inclusion. "We need to sustain growth…[but] the
economic model cannot only be focused on growth," he said. "We
cannot kill the goose that lays the golden egg, but create the
conditions for it to lay more eggs."

Peru’s potential growth rate – the
maximum rate output can expand without the economy overheating
– is widely seen at between 6% and 6.5%. Officials
expect the economy to grow at 6.3% in 2013.